A group of chief economists at some of the largest banks predict that the unemployment rate could sink to the lowest point in nearly 50 years.
The unemployment rate is expected to drop to 3.6% by 2019, potentially generating more wage pressure, according to the economic advisory committee of the American Bankers Association.
Factors such as a hike in federal government spending and business investment helped boost the economy and led the committee to increase their original prediction for this year’s gross domestic product growth from 2.4% to 2.8%. That would be the strongest pace since 2005, according to the ABA.
“We see the economy as fundamentally strong this year with little down drift in major sectors,” Ellen Zentner, chair of the group and chief U.S. economist for Morgan Stanley, said in a press release on Thursday. “Tax cuts and regulatory reform will help support continued growth in business investment.”
The economists expect that the growth will begin to level-off sometime next year.
“The slowing will occur as the tax impact begins to fade, fiscal spending moderates and the Fed continues to raise short-term interest rates,” Zentner said.
However, potential risks related to trade policy could stymie growth. The current forecast doesn’t account for an escalation of trade tensions. Issues with trade could have a ripple effect, including disrupting supply chains, that could dampen economic growth, the committee noted.
The committee also anticipates delinquency and charge-offs rates holding near historical lows while the availability of bank credit should remain strong.
Bank consumer credit is expected to increase by 5% this year while business borrowings are forecast to rise 3%. Business capital spending should grow for the second straight year at roughly 6%, the committee predicted.
The economic advisory committee includes 16 chief economists from the largest banks in the U.S. and Canada.